Previous Section Home Page

Column 595

I have a substantial list of what the Government have done for small businesses, but in view of the time I shall not read it out. We can oppose the Bill without saying that the Government are abandoning small businesses. I am almost a founder member of the small band of pilgrims that has done everything possible to help small businesses. We have seen a shrunken small business sector grow rapidly. The fact that there are now 1,500 net registrations every month shows how fast that sector is expanding.

In the past we have examined the problem, but we have failed to crack it. I hope we can crack it this time, but I do not think that the Bill will improve the present position. Unless there are some significant changes, I do not believe that it will gain the support of the House.

I recall what my hon. Friend the Minister for the Environment and Countryside said when he was Under-Secretary of State--I understand that he has now been given an extra job of recycling fridges--in reply to a temporarily estranged colleague, Mr. Richard Ottaway when referring to the debt code on payment on time. I was shattered and shocked at what my hon. Friend the Member for Hampshire, East said about the cynical attitude adopted by certain large British companies that are signatories to that code. The condemnations have been savage, particularly of GEC. Such an attitude is not in keeping with the approach and management that one expects from a flagship company of Great Britain. Quite bluntly, those condemnations should not be ignored. They should be answered. Either they should be challenged and denied or rebutted, or, if they are true, there should be a response and a change. If there is silence and the condemnations are ignored, the House will draw its own conclusions about the truth. My hon. Friend the Minister has taken most of my points from under me, as one would expect. Before I turn to the workable parts of the Bill, I shall touch on an important fringe matter. There is no reason whatsoever why small businesses should be exempt from any measure of debt repayment. Where should we draw the line? We all know the problems of trying to define a small business--whether it should be 50 employees, 100 employees or a certain turnover. Why should we deal with only public companies? Why should private companies be exempt? Private companies supply public companies and public companies supply private companies, so why should there be any difference? We have worked quite hard and we have yet to succeed in getting a set-aside in Government purchases so that Government Departments purchase from small businesses. I do not see why there should be any such exemptions.

All I need to say about the interest rate is that it must be relatively penal. I shall not go into the legal aspect of when a penal interest rate becomes extortionate, but it has to be penal to make it work. It would be very unfair to leave it at a break-even figure. The invoice that a small company sends to a large company contains more than the payment and the interest--it contains an element of profit. A small company needs that profit element because it represents its growth factor for the future. It needs that money to expand and develop, otherwise it will simply mark time. I have some experience in the business sector and have heard most of the variants on the "cheque is in the post" syndrome. Unless we are careful, the Bill will create a shoal of new reasons for delay. I can foresee all the examples for setting aside the statutory payment period. My hon.

Column 596

Friend the Member for Gainsborough and Horncastle (Mr. Leigh), in his characteristically robust way, made the views of the Coventry chamber of commerce fairly clear and showed how such problems can develop. A series of standard letters will be written complaining that the quality, delivery or paperwork was not up to scratch in order to extend the time for payment. It will become a lawyer's paradise.

Mr. Timothy Wood (Stevenage) : I should like to pursue that point, because in many instances of delayed payment there has usually been a dispute about the quality of the goods or service provided. In reality the Bill may generate a raft of correspondence to justify delays in payment, thereby leading to additional costs that are being avoided at present.

Mr. Page : With such a raft of artificial reasons, the real reasons for the delay will become muddled, and confusion will be added to the existing problems.

My hon. Friend the Member for Hampshire, East said that enforcement will be voluntary. He therefore plunged the argument back to where we are today, whereby a big company can be taken to court. As my hon. Friend the Member for Lancashire, West (Mr. Hind) said, it can brutally be taken to court, especially if a small business does not want to do business with it again. But small businesses do not do that because they do not want to lose future business. Will small businesses slap an interest charge on large companies, or for the purpose of good relations will they say, "Let us hold back and let it go"?

Mr. Gill : Is my hon. Friend seriously suggesting that every time responsible public companies are faced with paying interest on debts that they have not paid on time they will take court action? That is not the object of the Bill. Its object is to make it clear, beyond peradventure, that it is no longer acceptable to spin out payment of debt by offering all the excuses of which the House is well aware.

Mr. Page : I am saying that a small company will not take a large company to court. It will say, "We will waive the interest rate because we do not want to upset the big company and lose its business."

Mr. Mates : What does my hon. Friend say about the Rolls-Royce director who said to me, "Of course, we would not pay late ; there would be no point in us doing so." He would pay on time.

Mr. Page : I appreciate that, but what about the example of the purchasing manager of a large company persuading smaller companies to be more tolerant?

I fear that if the Bill is enacted companies will write terms of contracts covering any possible extension or delay in payment. A cheque may genuinely be in the post, but be delayed because of a problem with the post ; there may be a delay because the computer has genuinely broken down ; and there may be a delay because of holidays. However, we will find that contracts, instead of offering the normal contract period, will offer a "comfort" period. That will become the norm, rather than the standards that we should like to be achieved. I finish as I began. I am with the Bill in spirit, but I am doubtful about it in practice. I should like to see the problems overcome. Despite my doubts, I echo the sentiments expressed by my hon. Friend the Member for

Column 597

Chichester (Mr. Nelson), when he said that the House should make a decision and not use a device to halt that process.

1.5 pm

Mr. Christopher Gill (Ludlow) : It will come as no surprise to the House to hear that I shall support the Bill. My remarks will be brief because the House has been so tolerant of my interventions. There will be considerable relief in Wolverhampton today because I am here harassing my hon. Friend the Minister about this problem rather than harassing my credit controllers in my medium-sized business. I compliment my hon. Friend the Member for Hampshire, East (Mr. Mates) on his initiative in introducing the Bill and on the excellent and comprehensive way in which he put the case. I entirely agreed with every word that he said, but I find myself in a position that I would rather not be in. As an ardent supporter of a free and deregulated market and as one who believes that the best thing that the Government can do is to keep out of the business arena, I am arguing for a measure of regulation.

As my hon. Friend the Member for Hampshire, East made clear, the voluntary code--the appeal to people to take a responsible attitude in this important matter--has failed. Payment on time has been torpedoed, principally by the big battalions of Government, local government and big business. Often, the enterprises that have positive cash flow and are cash-rich have operated to the grave disadvantage of their small and medium-sized suppliers.

I am sorry that my hon. Friend the Member for Romsey and Waterside (Mr. Colvin) is not here to hear me refer to farming, which he broached. It provides a classic example. Until recently, it was the practice in the livestock industry for auctioneers to pay livestock producers on the day that they sold their produce in the markets. Sadly, that no longer happens. The wholesaler does not pay the livestock auctioneer because he is not paid by the retailer. Five major retailers account for 75 per cent. of all packaged groceries sold, so they have enormous power and, more to the point, are cash-rich. A serious chain reaction has been set in motion by the very people whom the Bill is designed to bring to order, because they are the people who could release a torrent of cash to small and medium- sized businesses. Thirty years ago, there was not a problem but, as many hon. Members have said, there is now an enormous one. My hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) referred to the morality that should apply, but there is no morality today. In the past, a supplier would expect and get prompt payment from his customer, but that morality no longer exists.

Mr. Arbuthnot : Will my hon. Friend give way?

Mr. Gill : I shall not give way because I am anxious to give other hon. Members an opportunity to speak.

Other Conservative Members have mentioned factors. Thirty years ago, there was no such thing as a "factor" because there was no need for it. It is a phenomenon of our age. These things have sprung up out of this totally unacceptable phenomenon. The worst offenders are indisputably the big companies. They exploit their power ruthlessly in the market not only by dictating the specifications and the prices of the goods and services that

Column 598

they buy--which is perfectly legitimate--but by setting terms that they themselves break. I have no doubt that extended credit and the effect that that has on the cash flows of smaller businesses can be catastrophic.

At present, that predicament is exacerbated by higher interest rates and we see small and medium businesses caught in a vicious circle of paying more to their bankers to borrow more and to finance the debts of their cash-rich customers who, at the same time, are themselves profiting by investing the money that rightly belongs to their suppliers on the money market to earn additional profit. When we talk in terms of morality, there is a big question mark about whether that is acceptable. My hon. Friend the Member for Stockport (Mr. Favell) has said that there is big money in paying late and I am sure that he is right.

The Bill is vital for the future well-being of a highly important sector of the British economy which now finds itself caught between the hammer of high interest rates and the anvil of extended credit. 1.11 pm

Mr. Edward Leigh (Gainsborough and Horncastle) : My hon. Friend the Member for Hampshire, East (Mr. Mates) will be relieved to hear that I do not intend to speak at length not least, if it is not too poor a pun, because my hon. Friend is a good mate of mine. As I have listened to the argument this morning, I have realised that a consensus has developed. As my hon. Friends will know, I am very much a consensus politician, but I do not know whether it will be possible for us to achieve that consensus by 2.30 pm. I wish that it were. I want to outline what I see as some of the problems with the Bill. I shall summarise the main arguments in favour of the Bill. It is said that it would be a deterrent to late payment, which is said to be an increasing problem because of the current high level of interest rates. It is said that this is a moral issue and that companies awaiting payment of sizeable debts by larger companies should have some automatic legal redress. My hon. Friend the Member for Hampshire, East put forward the argument that that is a common practice in the European Community. Another argument is that a major small business organisation, the Forum of Private Business--and I pay tribute to its work, because it also operates in my

constituency--supports the Bill. A point that has not yet been made is that the Government have already acted on payment of VAT receipts, so in that sense they have set a precedent. How do those arguments measure up to reality?

The problem has undoubtedly been recognised for some time. Lord Denning, in characteristically effective language in Harbutt's "Plasticine" Ltd. v. the Wayne Tank and Pump Co. Ltd. in 1970, said :

"It seems to me that the basis of an award of interest is that the defendant has kept the plaintiff out of his money ; and the defendant has had the use of it himself. So he ought to compensate the plaintiff accordingly."

The principle has been recognised equally by Lord Roskill who, in President of India v. La Pintada, said :

"My Lords, it would be idle to affect ignorance of the fact that the present state of the law in relation to this case places the small creditor at a grave disadvantage vis-a -vis his substantial and influential debtor. The former may fear to offend the latter by instituting legal proceedings either swiftly or indeed at all and it is notorious that some substantial and influential debtors are not slow to take advantage of this tactical strength, especially in time of financial stringency. It

Column 599

has taken two pieces of legislation, one some 50 years after 1893 and the other almost another half-century later, to remedy the injustices"

of the case.

Some of our most eminent legal minds have addressed themselves to the problem, which my hon. Friend the Member for Hampshire, East was undoubtedly right to raise. We must ask ourselves not whether there is a problem--that is accepted--but whether the Bill would provide an efffective deterrent, a question on which I have my doubts. The efectiveness of the Bill will depend critically on whether creditors would enforce their rights under it, and I am not convinced that my hon. Friend the Member for Hampshire, East, in his fairly long speech, has made a convincing case that they would. Legal redress for small companies facing late payment is already provided in the Administration of Justice Act 1982 and the County Court Act 1984. As my hon. Friend the Minister said, the real problem--and it is more a question of commonsense than anything else--is that small firms have been reluctant to use existing legislation, which makes it unlikely that they would use the Bill. As my hon. Friend the Minister also said, there is a fundamental imbalance in negotiating strength between small and large businesses and legislation alone will not solve that. Mr. Arbuthnot : My hon. Friend may remember that in an intervention my hon. Friend the Member for Hampshire, East (Mr. Mates) explained that the main purpose of the Bill was to provide for interest to be chargeable between the date of contract and the date on which the writ was issued. My hon. Friend has just referred to the Administration of Justice Act 1982 which extended the payment of interest backwards, whether or not there was a judgment under the Law Reform (Miscellaneous Provisions) Act 1934. Does my hon. Friend agree that simply to extend interest back to the date of the contract is not a great improvement on the present position?

Mr. Leigh : I agree with my hon. Friend. Those who share my opinion of the Bill believe that the fundamental problem is not interest payments. It goes much deeper than that, and I am not sure that the Bill would go to the root of the problem.

The second argument advanced by my hon. Friend the Member for Hampshire, East in favour of the Bill is that the problem is becoming increasingly severe, that it now needs to be addressed and that the Bill would address it. I am not sure that that is entirely right. There can be many other reasons for delay in payment, such as bureaucratic inertia, a cumbersome payments system, or disputes over contract performance. I think that the European precedent argument was dealt with adequately by my hon. Friend the Minister, and I am not sure in any case that the Bill would make any difference. The next question is whether small firms support the proposals. There was one part of the speech made by my hon. Friend the Member for Hampshire, East which I did not think was fair. He doubted the credibility of the Association of British Chambers of Commerce. I ought to remind the House of what the association's head office said. My hon. Friend's suggestion that the association--a body that is intimately interested in the Bill--has not read the Bill and is not aware of its contents is unsustainable and ludicrous. The association made its position clear when it said :

"It is the Association's general view that every effort must be made to reduce, and not to increase, the extent to which legislation interferes in the commercial relationship between

Column 600

businesses. Beyond this point of principle, we have further concerns about the practical effect of the Bill. The key question is whether or not the Bill will lead to major changes in the payment practices of larger businesses. It is possible that it would, but serious doubts remain. More likely, we fear, is that larger businesses will adopt much longer payment terms, ensuring that they do not become liable for interest on amounts outstanding," That is a point that my hon. Friend the Member for Hampshire, East and his supporters have not adequately addressed. It is a point that the Association of British Chambers of Commerce made clearly and explicitly in its letter. If the Bill were given a Second Reading today and ultimately passed, not only might it not be an effective deterrent to late payment, it might also have a deleterious effect on small businesses.

Mr. Hind : I am the vice-president of the Merseyside chamber of commerce which, as my hon. Friend well knows, supports the Bill. Does he agree that if we are to introduce into our enterprise culture a difficult concept, such as interest, we should follow the view of the Law Commission and accept that if the provision is to be workable it should go right the way through business, from the smallest company to the biggest, so that it then becomes an accepted part of our culture? The problem with the Bill is that it selects two sectors of the market, large companies and Government, and ignores the rest. In time I suspect that we would be forced to return to the House to include the other sectors in the legislation.

Mr. Leigh : I am grateful to my hon. Friend. I hope that he will forgive me if I do not deal with his point at any length. I believe that I made it clear earlier in the debate when I read the letter from the Coventry chamber of commerce. My hon. Friend the Member for Hampshire, East suggested that the Coventry chamber of commerce did not understand the Bill. To say that this is a problem of big business alone is to simplify a far more complex problem. Late payment is just as much a problem of small businesses dealing with other small businesses as it is of big businesses trying to throtle small businesses. The problem is far more complex and we do not take the debate much further forward by suggesting that.

I promised to make a short speech to allow other hon. Members to contribute. My last point, therefore, relates to Government example. There is no doubt that the Government have taken considerable steps in this regard and I pay tribute to my hon. Friends on the Treasury Bench for what they have done. However, I do not understand the reaction of my hon. Friend the Minister to a question that I have now put to him no fewer than four times this morning. If the Government have been so successful in tackling the problem and have given so much advice to businesses about how they should address it--and we accept that Government have so done--why have they not admitted so far that if the Bill applied solely to Government, they would support it? That seems an entirely logical point of view. I do not want to put words into my hon. Friend's mouth, but I suspect that had my hon. Friend the Member for Hampshire, East introduced a Bill that applied only to Government, the Government might have accepted it. Had that been the case, it would have sent out a powerful message, which would have been far more powerful than any of the leaflets--good though they are.

Mr. David Ashby (Leicestershire, North-West) : My hon. Friend is a member of a most distinguished

Column 601

profession in relation to which the Government can provide an example. In setting an example, would it not be a good idea for the Government to pay members of the Bar within a month of the completion of a case, instead of barristers having to wait for four, five, six or seven years for payment by the Government for work that they have done? Should not the Government set an example and pay interest on those outstanding fees?

Mr. Leigh : I fear, Madam Deputy Speaker, that you might pull me up if I were to wander too far down that path which, I must admit, is of great interest to me. I had been a Member of the House for six years when I received the payment of £15 for a case in which I was involved as a pupil 10 years earlier. It was not much use to me.

Mr. John Marshall : No doubt my hon. Friend will have read the report of the Top Salaries Review Body, which points out that half the barristers in the land earn over £120,000 per year. Does he accept that there is little sympathy for the Bar in this House or across the country?

Madam Deputy Speaker (Miss Betty Boothroyd) : I am sure that the hon. Member for Gainsborough and Horncastle (Mr. Leigh) can show that sympathy or lack of it by referring to the Bill.

Mr. Leigh : I apologise, Madam Deputy Speaker. I did not want to be taken up the highways and byways of the legal profession.

Mr. Arbuthnot : Does my hon. Friend suggest that the Bill should make the Government a unique debtor and that they alone should bear some form of statutory interest burden that no other business or individual bears? If so, what does he have against the Government?

Mr. Leigh : I have nothing against the Government apart from the fact that I am a member of it. The Government are in a unique position. My objection to the Bill and that of some of my hon. Friends is that if it were passed, big business might simply extend credit periods. We would not accuse the Government of doing that. If the Bill applied merely to Government, it could not be argued that it would have a harmful effect on small businesses. The Government claim that they have instituted such practices already. If so, why do they refuse legislation that would apply to them?

Mr. Hind : My hon. Friend raises an interesting point. If his proposal were accepted, only the Government would be liable for interest. Let us take the Ministry of Defence as an example. It has an £8 billion or £9 billion procurement budget. It would pay its suppliers on time but the large companies with which it predominantly does business would not have to pass on the money that they receive to smaller businesses from which they have bought goods and services. If the Bill applied only to the Government, it would not help the small businesses that it seeks to assist. Perhaps my hon. Friend will reconsider if he looks at the matter in that way.

Mr. Leigh : My hon. Friend's argument is not logical. He takes us back to the roots of the argument about the Bill. The trouble is that one cannot trust big business not to get around the Bill by extending the periods of payment. However, one can trust Government. What I suggest is not

Column 602

an ideal solution, but a halfway house. It is a practical suggestion of a way forward. The Government could set an example which would be a good example to everyone else.

I urge the sponsors of the Bill and the Government to see whether it is possible in the next hour or the next five minutes to get their heads together. It would be a great pity if the Bill were to sink into the sand and an example were not set. Clearly, an example needs to be given.

1.26 pm

Mr. Matthew Carrington (Fulham) : There is an enormous amount of sympathy throughout the House for the Bill. Everyone recognises that late payment is a serious problem which particularly affects small companies, which are least able to bear the increased burden of debt that it forces on them. The difficulty with the Bill as drafted is that it is not certain that it would work. It must be judged precisely on whether it will change the attitude of large companies towards their responsibilities to the small companies who supply them.

The relationship between large and small firms is by no means a simple one. It varies enormously, depending on the type of industry and small firm. Broadly speaking, small firms can be split into two major categories. One is the regular supplier to a company. We have already had the example of Marks and Spencer, which looks after its small suppliers extremely well. The great characteristic of Marks and Spencer is that frequently it is not simply the major customer but the only customer of a supplier. It also imposes tight quality controls and financial regulations on its suppliers and looks after them as unconnected subsidiaries, if such a concept is possible in an informal industrial framework.

Many large companies probably have a similar relationship with their suppliers. In those cases, difficulties do not usually occur and certainly they are not caused deliberately. Difficulties arise when a company is an infrequent or irregular supplier to a large firm. That may be because many small companies are competing to supply one large firm. A typical example is the automotive industry, where small companies undertake component work for manufacturers of large assemblies. Those small suppliers are always competing with others who are equally capable of doing that work, and competition can be extremely tough.

Why do big companies not look after small suppliers and pay their bills promptly? There are a number of reasons. We have heard today examples of deliberately bloody-minded policy on the part of big companies, possibly because they want to enhance their cash flow by borrowing money. There may be companies that deliberately withhold payment to suppliers for that purpose and use their suppliers as an alternative means of borrowing. However, I suspect that that practice is much less common than is usually supposed--principally because the individual debts owed to small suppliers are in themselves quite small and also because the majority of large companies are cash-rich and do not need an alternative form of additional borrowing. The individual credit control officer or purchasing manager may use such a tactic to enhance his individual performance, but it is unlikely to be part of deliberate company policy laid down by the directors. I suspect that that is the case with GEC.

Column 603

Mr. Arbuthnot : My hon. Friend refers only to big suppliers making late payments, but the Association of British Chambers of Commerce may be right when it says :

"it must be remembered also that small firms are amongst the worst offenders for late payment."

Mr. Carrington : I entirely agree, but I shall confine my remarks to the problems addressed by the Bill. I agree also that the Bill should perhaps be broadened, but I was addressing the particular problem of late payments by large firms to small suppliers. I suspect that frequently the reason why large purchasers tend not to pay small companies is sheer incompetence in their own payment systems--which is, I suspect, more common than many of them care to admit. I believe that there are often real doubts about the completion of contracts. Although such doubts may sometimes be used as an excuse for non-payment, in many cases that is not so and genuine doubts are raised about the quality of supplies and whether payment for them should be made.

I suspect that the real reason for late payment is that large companies do not really care about their suppliers and that it is irrelevant to them whether their small suppliers suffer. It probably does not matter to the large company whether it pays its bills on time, as that is not a high priority among all the other considerations that it must take into account when trying to run its business.

The small company can do very little. It can go to court now, and could do so on a different basis if the Bill became law and was enforceable. However, the reality is that small companies do not take big companies to court because the moment they do so, they cease to be suppliers to the big companies. One of the arguments in favour of the Bill is that it would alleviate the necessity for a small company to go to court because it would be so obvious that summary judgment would be made in its favour.

Mrs. Currie : My hon. Friend knows that I am not a lawyer, but it seems to me that there is a little bit of sophistry flying around. If small businesses will not use existing legislation that gives them the right to go to court and claim damages and interest, why in heaven's name will they be inclined to use any additional legislation for the same purpose?

Mr. Carrington : I entirely agree with my hon. Friend. The reality is that whatever happens a small supplier that wishes to continue doing business with a large purchaser will never use the courts, except as a final resort. As I understand it, my hon. Friend the Member for Hampshire, East said that the Bill was designed to alleviate the necessity of going to court. Hon. Members can make their own judgment about whether that is likely.

The relationship that has to exist between a big company and a small company must be based on the concept of mutual need and self-interest. Big companies receive a considerable service from small companies and a big company that does not recognise that is not running its business efficiently. If it does not recognise the benefits that a small company provides in terms of convenience and flexibility in purchasing, the cheapness of its supply and control on costs, the big company should seriously consider providing in-house the services that it was buying in from by the small company. A small company should

Column 604

ensure that when it supplies a big company it clearly understands the advantage to the big company of having it as a supplier. As has been rightly said, large companies always have the whip hand. I can give a related example from my own experience when I used to be a banker. Banks, as a matter of course, always write into their loan agreements a clause saying that if payment is late under the loan agreement, penalty interest will be charged. That is a similar effect to the one that the Bill would have--if payment is not received on the due date, penalty interest will accrue from that date. There is a good body of law to support that and it is easily enforceable. As a banker, I would always enforce the law against a small company, but if I had a big customer I would never enforce the penalty clause because that would damage the relationship. Large companies have always had, and will almost certainly always have, the whip hand. It is unrealistic to think that legislation will change that. If legislation will not solve the problem how can we tackle it? How can we make a change in the business environment in this country to benefit small businesses? As has been said, one of the major changes would be for the Government to ensure that, as a matter of principle, they start to pay their bills promptly and without contest on the due date. That does not require primary legislation ; it merely needs a directive to go to the relevant Civil Service Departments stating that that should happen. From the Civil Service it should go to governmentally controlled bodies. If such good business practice was established in governmental purchasing and worked its way down so that governmental purchasers made it clear that they expected their suppliers, in turn, to pay their suppliers on time, that would do more good than any amount of legislation.

On the issue of the extended contract period, it has been said that, at present, payment terms will go up from 30 to 90 days as a matter of course, and that is so. I suspect that that is less a reflection of incompetence in business than a reflection of the dramatic rise in interest rates. A fundamental solution to the problem would be to reduce interest rates and the cost of money. People would then pay their bills on time because the commercial disadvantages of not paying their bills on time would be vastly greater than the financial benefits.

1.38 pm

Mr. Martin M. Brandon-Bravo (Nottingham, South) : I am very much in favour of this modest measure and would be happy if the House gave it a Second Reading. I am certainly in favour of it in spirit because to block it or vote against it would be like voting against fairness and good practice and Conservatives should not be seen to be doing that. I am with it in spirit due to many years of practical experience. For my sins, I spent 31 years in manufacturing before coming to this place. For a large number of those 31 years I experienced the joy and sorrow of trying to find a balance between the debtors and creditors of the company of which I was chief executive. So I know about the commercial world that many of my hon. Friends have discussed so sensibly this morning.

It is perfectly true that in business we have to make difficult commercial judgments. If we deal with an old and valued account, we compromise. We pick up the phone

Column 605

and try to find out what the problem is. We try to discover exactly how long we shall be kept waiting for our money. With old and valued accounts we get by without falling out, because that is the way of the world.

With a new account, however, it is a different ball game. This Bill would provide a little more strength for the new supplier who has tried out a new customer and does not like what he sees. A new supplier cannot pick the phone and say, "George, we have done business for years--what is going wrong?" He is dealing with a stranger, but this piece of legislation would help him if he felt that the new customer was bound by it.

A new supplier does not have to ask himself whether to take his new customer to court for his money. It is often a sensible decision to decide to do without an account--there are accounts that every business can do without. At least the new supplier will know that between taking the decision to recover his money and the time when he receives it he will not be at a financial disadvantage ; he will receive interest on the debt, and rightly so.

The Minister was right : it is not for Government to put themselves between the supplier and the supplied. However, the Government are in the business of encouraging a good commercial climate in which business can flourish. It is up to Government to establish a reasonable and unoppressive framework within which business men can get on with the job of running their businesses, with minimum regulation and interference.

The objectives behind this Bill do not amount to interference or oppressive regulation, as my hon. Friend the Member for Ludlow (Mr. Gill) called it. The word "regulation" does not apply. The legislation merely provides a statutory right to interest when a debt is unpaid.

The Government should only be in the business of maintaining the right climate. We have been told at Question Time and in press releases in recent months of our success with start-up businesses. Twelve years ago, under a different Administration, closures exceeded start-ups by a frightening proportion. The last published figures, for 1988-89, show that recent comparative figures for closures and start-ups exceed our wildest dreams of only a few years ago. Conservatives would be doing ourselves less than justice if we were not realistic when trumpeting these figures. For very good reasons the Government seek to take the economy off the boil. I hope that the Chancellor has good anti-skid brakes.

The figures for the past few months certainly show a reduction in the exciting figures published for 1988-89. However, we should be cautious about trumpeting the figures of 12 months ago. The Chancellor has rightly put a damper on the economy but we must accept that that policy has some adverse effects. Although I cannot present firm evidence to the House, I know that some small businesses are suffering a great deal of pain. I hope that we do not have to apply the brakes too hard for too long.

When we talk about small business we are also talking about the self- employed. We took great pride in announcing that finally the number of registered self-employed has exceeded 3 million. That figure is beyond our wildest dreams of a few years ago. Italy's economy was once far behind ours, but I think I am right in saying that it now has about 6 million self -employed people. We have a long way to go before we match some

Column 606

of our continental partners in providing the seed corn of a strong economy. The population of Italy is much the same as ours yet it has 6 million people working for themselves. Those businesses are small but they will become the medium and large businesses of the future. I entirely agree with my hon. Friends and the Minister who spoke about how much we have done to help small businesses. That is not in dispute. We have reduced the level of taxation and have kept a tight lid on inflation, and those things are good for all businesses, small and large. We have reformed the employment laws and that has helped small businesses. However, we are now dealing with basic economics, the money side of running a small business, at a time when we are also damping down the economy.

The Government and the public sector are certainly leaning on the business community, and especially on our small businesses. As a manufacturer controlling a company's cash flow I did not pay VAT, PAYE or national insurance until I had to. No firm in the country pays its dues before it needs to do so. Every small business man will confirm that the Government insist on the payment on the nail of PAYE, national insurance and VAT. That is right because it is public money and the Government charge interest if they do not receive it on time. What is sauce for the goose should be sauce for the gander. Unfortunately when it comes to the payment of VAT and PAYE, the small business man cannot change his customer because he does not have a choice. In these difficult times we should at least try to do something for the small business. My hon. Friend the Member for Hampshire, East (Mr. Mates) has not suggested that the Bill is a complete answer to the problems. He and my hon. Friend the Member for Ludlow talked about trying to create a climate or culture in which businesses in their relationships with each other take it as read that they will play the game. If the contractual terms refer to payment within 30 days, payment should be made in 30 days. The Bill aims to improve the general attitude.

Several hon. Members have said that they like the Bill in principle, but want to change some details. The time to do that will be in Committee. If the Bill becomes law and encourages good practice, today's debate will have been very worthwhile.

1.50 pm

Mr. David Martin (Portsmouth, South) : This is the second Friday running on which I have participated in a debate on a private Member's Bill. Such debates are rather like the late-lamented fourth leader in The Times --both entertaining and instructive, but without much practical effect if the Government are opposed to what is being suggested.

I am very pleased that my hon. Friend and near neighbour the Member for Hampshire, East (Mr. Mates) has presented the Bill. I am also pleased about the dramatic effect of the Bill that he did not present. Often more can be done behind the scenes than can be achieved in an entire Friday morning's debate that will have little practical effect.

I have many years' experience of family business and some earlier experience of legal matters, so I know the problems from various angles. My business experience convinces me that the Bill will be a useful addition to the

Column 607

armoury of those who are cursed with the problem of bad debts. All business men use ruses--they know that they can delay payment for goods or services by complaining about them. It is also wise to avoid involving lawyers. Anyone who has to pay the bills even for solicitors' letters is extremely foolish if he thinks that they should be part of the unofficial board of any company, private or public. Speaking as a lawyer, I feel that lawyers should be kept as far away as possible from business.

Mr. Hanley : But not accountants.

Mr. Martin : My brother happens to be an accountant and I have views about them as well, but in deference to my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) I shall not go into them.

One of my most impressive methods of pressing for the payment of debts was borrowed from the legal process : sending a letter closely resembling a writ. I remember receiving one and then imitating it. It is possible to get away with making letters look very much like writs, and it is amazing how quickly payment arrives as a result. As we have heard, the Crown is very adept at obtaining money from us, and obtaining interest on that money. Anyone who is away from home for a long time--during the first summer recess after my election, I was away from my London home for a considerable period--soon discovers the speed with which the gas, electricity and telephone bodies embark on their pursuit. The bills turn from black to red ; then come the writs and the details of the costs. I challenge anyone to try to delay payment of the former nationalised industries ; the attitude of such large concerns is very different from that of the small businesses with which I was involved. As several hon. Members have mentioned that already, however, I shall not go into further details.

With my practical experience, I understand the worries of small businesses. In the south, and particularly in my constituency, the introduction of the uniform business rate and the reform of domestic rates has led me to remember Macaulay's typically wise dictum : "For unjust and absurd taxation to which men are accustomed is often borne far more willingly than the most reasonable impost which is new."

That has come to mind on many occasions during this debate and others on the system which my hon. Friend the Member for Hampshire, East proposed to replace the unjust and absurd system with which many businesses are unhappy. It gives rise to reasonable worries, but because of the conservative nature of British people--in both senses of the word--when the new system is in operation I predict that it will be defended tooth and nail if someone tries to change it in future. Those who pushed railway lines through the country in the last century, sometimes faced great opposition, but when attempts are made to shut them down or to remove the viaducts that once were considered to besmirch the countryside, it is an entirely different matter. People have got used to the railway lines and the viaducts and it is difficult to accept a change.

I believe that what Macaulay said about taxation will apply to any new arrangements that we put in place, but we need time and we must ensure that the policies that apply to small businesses are understood.

In the past 10 years the Government have done much to help small businesses, not least through changes in the tax structure and reductions in taxation. People sometimes

Column 608

say that they would do better under a Labour Government, but businesses do not do better under Labour. I was in business under the last Labour Government and I also have experience of running a business under the present Government. In the days of the Labour Government it was difficult to build up any capital from the money that one made, whether from one's personal income or one's business. The amount of investment that one was able to plough into a family business fell dramatically after the war compared with when my late father began our family business in 1930.

The Government have created the conditions to help family businesses. In the short term, there will always be problems for business with high interest rates and cycles that go against businesses. Businesses cannot complain that they are getting into difficulty simply because people owe them money and are not paying their bills. Nor can they complain about high interest rates getting them into difficulties.

My late father started our family business in 1930 during the depression and always remembered the lessons from those days. There are bad times as well as good times. Anyone with any sense or wisdom should make sure that they do not take risky decisions. They should realise that there will be bad times as well as good times. Many estate agents should have heeded that advice. Setting up a business requires patience, persistence and hard work. One cannot build up a business without any one of those factors. I remember reading the advice given by his grandfather to Lord Keeper Guildford about building up a law practice. He said :

"If you will be contented to be a great while getting a little, you will be a little while getting a great deal."

There are some who roar around in their Porsches after only a short time in business only to discover that interest rates go against them, that uniform business rates change the system and that their bad debts build up. They complain that a certain factor is the reason why they are in difficulty or have gone bust. Such people should look at the way in which they have built up their businesses and managed them. They should consider the wisdom of those who founded businesses that have been established for more than one generation.

I would have said a great deal more had it not been for the many wise comments that have already been made. The Government have taken many initiatives and will do more in the 1990s. Without many difficulties and without going against the principle that the Government should not legislate unnecessarily--when the Unfair Contract Terms Bill was introduced in the 1970s the chambers of commerce did not think much of it and many who object to today's Bill would have objected to it very strongly--there are instances when the Government can help through legislation.

My hon. Friend the Member for Hampshire, East has produced a proposal that is reasonable and measured. It should be added to the many things that the Government have done for small businesses, and I recommend it to the Government.

1.59 pm

Next Section

  Home Page